As if hospital executives didn’t have enough to keep them up at night, with their days spent trying to cut costs while improving efficiencies and outcomes, they are also concerned with risk mitigation as it relates to “anti-kickback” statutes, such as Stark, Safe Harbor and Fraud & Abuse. Over 50% of investigations by the Officer Inspector General (OIG) begin with real estate. Hospitals and health systems have paid hundreds of millions of dollars in penalties and fines, which continue to increase. It’s important, therefore, to have a basic understanding of these statutes and how they may apply to real estate decisions.

We recommend that hospital executives and real estate managers are updated regularly on how to navigate new and existing real estate transactions with physicians who are referring patients to the hospital. The most common violations occur in the following situations: 1) time-share agreements, 2) generous tenant improvement allowances, 3) excessive free rent, 4) calculation of useable vs. rentable square footage, 5) enforcement of market rates and terms, utilizing third party fair market value (FMV) assessments, 6) enforcement of rent escalations, 7) enforcement of rent collection, and 8) lease term and expiration/renewals. Without proper training, it’s easy to let transactions under these circumstances to slip through the cracks. It’s never too late for hospitals to perform lease audits and begin the process of correcting violations and bringing all leases into compliance.

Going forward, hospitals can adopt new standards and avoid future violations if they establish real estate compliance policies and procedures, along with the proper training. We’ve found that it’s actually easier to enforce strict adherence to real estate compliance standards than it is to bend the rules. Most physicians and group practices will respect a hospital’s decision to make compliance important early in any lease negotiation, rather than open the door to flexibility. Trying to unravel a non-compliant transaction once it has been executed can be a political disaster and huge liability for hospital administrators.

All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of Newmark. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient's choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of Newmark, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains. This document is intended for informational purposes only and none of the content is intended to advise or otherwise recommend a specific strategy. It is not to be relied upon in any way to predict market movement, investment in securities, transactions, investment strategies or any other matter.

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